Spillover Effect Of US Monetary Policy On China’s Economy And Its Time-varying Characteristics

With the substantial deepening of global economic,trade and financial integration,more and more studies have found that the global economic situation and growth are driven by the global financial cycle,which seems to be largely determined by the monetary policies of the United States.These policies have important side effects on the rest of the world,especially on the asset prices of emerging market economies and Capital flows.This is especially true for China.After the financial crisis in 2008,the Federal Reserve implemented quantitative easing policy four times in a row.By the 2019 trade war,the uncertainty of US monetary policy has a significant impact on China’s monetary policy adjustment.This paper studies the impact of U.S.monetary policy on China’s macro-economy based on the latest research results and research methods in China and abroad.First of all,Based on the model NOEM under the new opening conditions,this paper analyzes the impact mechanism of U.S.monetary policy on China’s output,and then uses SVAR model to analyze the impact of US monetary policy on China’s output from different channels(price,investment,trade);at the same time,it empirically studies the impact of US monetary policy on China’s major macroeconomic variables,including the financial cycle,China’s export and real estate market.At the same time,the paper explores whether the cyclical regulation of US monetary policy includes the structural change of the impact of conventional and unconventional monetary policies on China’s economy,whether it reflects the time-varying characteristics,which channel has a more obvious impact in different channels,and what are the differences between the short-term and long-term impacts.The conclusions are as follows:First,the US monetary policy affects China’s total economic output.The empirical results of this paper are that the expansion of monetary policy can improve China’s exchange rate,and then increase China’s net export,and then promote China’s output level;at the same time,under the unconventional monetary policy,the expansionary monetary policy(i.e.increasing money supply)of the United States generally reduces China’s exchange rate,reduces China’s net export,and ultimately leads to the decline of China’s output level The impact of the traditional and non-traditional monetary policies of the United States on China’s three transmission channels of consumption(price),investment(FDI)and trade(total import and export)are very significant;when the United States implements the tightening monetary policy(the Federal Reserve raises interest rates),from the perspective of price,it will lead to China’s price decline in the short term,but it will lead to inflation in the medium and long term From the perspective of investment channels,it will promote the development of China’s FDI in the short term,but the impact in the medium and long term is not significant;when the United States implements the expansionary monetary policy(increasing the money supply),it will lead to China’s sustained price rise;at the same time,it will lead to the increase of China’s FDI,and its impact also has a certain delay Further,if foreign capital continues to enter for a long time,according to the law of diminishing marginal return of capital,the promotion effect on economic growth will be smaller or even negative;from the perspective of trade channels,the expansionary monetary policy of the United States has a significant negative effect on China’s total trade。Second,this paper studies the impact of US monetary policy on China’s financial cycle(FCI),and finds that the Federal Reserve’s monetary policy has a significant impact on China’s financial situation through the federal funds rate,US long-term treasury bonds and interest rate differentials;the impact of the federal funds rate on China’s financial situation is more significant in the medium and long term,that is,which means the impact increases over time,and in the period of quantitative easing,the impact of us 10-year Treasury bond interest rate on China’s FCI is greater in the medium term;the impact of unconventional monetary policy on China’s FCI is more significant in the period of quantitative easing,and the duration is longer.Third,this paper analyzes the impact of the cyclical monetary policy of the United States on China’s exports.The research shows that the impact on China’s exports is most significant when the direction of the U.S.monetary policy changes.The impact of the effective interest rate of the federal funds on China’s exports peaked in the second quarter of1999(from loose to tight),the fourth quarter of 2004(from loose to tight),and the second quarter of 2007(from tight to loose).These three time points are the directional changes of the US monetary policy.The US monetary policy affects China’s exports through the real effective exchange rate of RMB,in the short term,the rise of the federal funds rate and the devaluation of the RMB have a very small positive effect on China’s exports,but the effect is not obvious in the long term.Fourth,the monetary policy of the United States influences the real estate price of China through policy channels and capital circulation channels.The results show that the impact of US interest rate on China’s real estate prices is positive after 2009 in the short term,but negative in the medium and long term,except for the negative effect before 2009.The impact of the growth rate of us money supply on the price of real estate in China is positive in the short term,medium term and long term,but the positive impact decreases in turn.In general,this paper makes a comprehensive and in-depth study on how American monetary policy affects China’s economy.There are some innovations in research ideas and methods.In terms of research methods,this paper uses SVAR and TVP-VAR respectively,which can show the current and early relationship between variables,and studies its time-varying effect and structural volatility.In the study of China’s financial cycle,principal component analysis is used to build a comprehensive financial index system,which can describe the situation,change rule and its impact on the macro-economy of the financial market comprehensively.This study complements the literature on the spillover of US monetary policy to China’s economy.The conclusions can provide empirical evidence for the development of financial market,import and export trade and real estate market to a certain extent,and provide operational suggestions for the Chinese government to construct the international coordination of monetary policy.